Amazon Error May End 'Dynamic Pricing'

S E A T T L E, Sept. 29

By Michael J. Martinez

In the space of two weeks, online retailer
Amazon.com has been forced to apologize, issue refunds and appease
angry customers after it was found to have charged some people more
than others in random price testing on its Web site.

With the virulent reaction of Internet-savvy customers, and
Amazon.com’s rapid decision to drop the tests, those tempted to
offer different prices to different customers online had better
think twice.

Amazon.com has faced allegations — which it denies — that the
different prices were based on customer data, such as where a
person lives and how much he or she might have previously bought at
Amazon.com.

“We’ve never tested and we never will test prices based on
customer demographics,” founder Jeff Bezos said in a news release
Thursday.

Consumer-Friendly Net

Online retailers in general may never get the chance to do so,
since customers have proven to be sharp-eyed when it comes to
price. The Internet itself encourages comparison shopping, and
swapping of information by consumers.

“With popular sites like Amazon, you really can’t get much past
the consumers anymore,” said Tom Wyman, electronic commerce
analyst for J.P. Morgan. “They’re out there trading notes all the
time, looking for the best deals.”

The problem started a few weeks ago, when Amazon.com customers
who bought digital video disc (DVD) movies began comparing notes
online. The media picked up on the disparity, forcing Amazon.com to
admit it had been conducting random price tests.

Amazon.com spokesman Bill Curry said the tests were useful in
determining a price point — the right balance between how much
Amazon.com could charge and still maintain a good sales volume.
Nevertheless, because of the consumer outcry, Amazon.com ended up
refunding 6,896 customers an average of $3.10 each, or a total of
$21,377.60.

Amazon.com has no immediate plans for more random testing, but
Curry wouldn’t rule it out in the future. He said customers
involved in any test would get a refund if they paid more than the
lowest price used in the test.

Privacy Issues

Such pricing tests have privacy advocates concerned, since
consumers have only a company’s word and their own observations
that personal information isn’t used.

“Certainly, the Internet is wonderful for trading information
for consumers,” said Jason Catlett, president of the advocacy
group Junkbusters. “And, Amazon.com is under a tremendous amount
of scrutiny. But until the U.S. adopts laws protecting the use of
consumer information, many of these companies won’t get caught
misusing this data.”

The idea of so-called dynamic pricing isn’t new. Stores in
well-off neighborhoods may charge more than stores in poorer areas
for similar goods. But the vast databases of the Internet create
the possibility of targeting prices directly to individuals, based
on their billing information and purchasing history.

Wyman said Amazon.com’s misadventures may help to prevent
widespread use of such practices.

“Most e-commerce sites right now need to charge as close to the
suggested retail price as possible. They need the money,” Wyman
said. “I think the days of deep discounts are done. And dynamic
pricing really only works online when you’re below the normal
retail price.”